Month: April 2014

Each year, as part of their annual financial return, Housing Associations provide a value for money statement. It should describe in clear and transparent terms the value for money improvements made within the previous financial year.

Two events of interest have occurred. The Regulator, the Homes and Communities Agency (HCA), has expressed concern about the quality of last year’s returns. One of the charges levied related to an over emphasis upon reporting costs and a lack of reference to the value of the services delivered to the customer.

The second event was the publication ‘Measuring the Social Impact of Community Investment: A Guide to using the Wellbeing Valuation Approach’ by HACT, supported by Affinity Sutton and Catalyst Housing. In short, this provides a robust and easy to use method for monetizing the value of services Housing Associations (HAs) provide to their customers. This guide is a timely response to some of the HCA’s concerns about the reporting of value.

But with that said, a fundamental problem remains, and it is to do with the reporting of costs, not value. Until it is resolved it is not clear how Stakeholders can be provided with the correct story about the value of services delivered. Commercial organisations cracked it years ago through the principle of Shareholder Value. It’s worth starting there.

Put simply, Shareholder Value takes two factors into account – the value to a customer from a service, as expressed in the price that they are willing to pay, and the full cost of delivery.

The cost of delivery takes more into account than just the direct effort of delivery. It includes all costs that are directly influenced by the provision of the service, wherever they occur. For example, a company offering training services may have to field telephone calls from customers, provide advertising and promotional material, seek feedback, respond to complaints, send out invoices, handle payments, recruit appropriate trainers etc.

For Shareholder Value to increase, the price that customers are willing to pay must be greater than the full cost of delivery.

These principles apply equally well to Housing Associations. In place of a price paid by a customer for a service we have its monetized value as provided by HACT. For example, at the time of writing, the average wellbeing equivalent for an outcome described as ‘no problem with anti-social behaviour’ is an annual amount per person of £6,403.

There is then the full cost of service delivery. Staying with the anti social behaviour example (ASB), work that we performed in the Network Housing Group showed that ASB cases impacted people across the organisation. The Neighbourhood Teams provided the core service. But ASB cases drove Contact Centre resource, complaints administration effort, senior management attention, reporting effort, even costs within the Repairs Team whenever Operatives and Surveyors encountered ASB issues within the properties they visited.

A traditional approach to costing a service is to look at job descriptions and say – ASB, that’s just the Neighbourhood Team. The Repairs Team just do repairs, they have nothing to do with ASB. This is the easiest approach but it ignores the reality on the ground. Significant costs that are driven by customers of the service will be missed.

And it will mislead Stakeholders. The experience of companies with real shareholders and a market based measure of Shareholder Value is that investment in a service without understanding the full costs associated with it is to risk destroying value rather than growing it.

So, our recommendation is for HAs to think of themselves as having Shareholders rather than Stakeholders. They should then ask themselves ‘what information would a Shareholder expect to have from us that would reassure them that we are spending our money as wisely as possible?’.

I think it will become clear that, rather than focus upon value rather than costs, costs will have to remain centre stage.